Mandelson returns from exile as Blair says 'he's paid his price'

PETER MANDELSON made a speedy return to the Cabinet last night when Tony Blair appointed him Secretary of State for Northern Ireland only 10 months after he resigned in disgrace over his £373,000 home loan.

PETER MANDELSON made a speedy return to the Cabinet last night when Tony Blair appointed him Secretary of State for Northern Ireland only 10 months after he resigned in disgrace over his £373,000 home loan.

In a more wide-ranging reshuffle than expected, the Prime Minister bolstered his authority over his cabinet by promoting Mr Mandelson and three other Blairites to key posts.

Mo Mowlam, who left the Northern Ireland Office, took over as the Cabinet's "enforcer" from Jack Cunningham, who offered to stand down in July to make room for younger blood but had hoped to stay on when Mr Blair put off significant changes.

The other two Blairites to win promotion were Alan Milburn, who moved up from Chief Secretary to the Treasury to the high-profile post of Secretary of State for Health, and Geoff Hoon, who entered the Cabinet with the defence portfolio after just three months as a Foreign Office minister.

The other newcomer is the Employment minister Andrew Smith - an ally of Gordon Brown, the Chancellor - who becomes Chief Secretary to the Treasury, a post he shadowed while Labour was in opposition.

Although Mr Mandelson's rapid rehabilitation was seen as a surprise at Westminster, Mr Blair believes his close ally has "paid his price" and was determined to bring him back. The Independent understands that he intended to send him to the Northern Ireland Office in July, but Ms Mowlam dug in her heels at a critical phase of the peace process and scuppered the wider changes announced last night.

Mr Mandelson will visit Ulster with Ms Mowlam today and hold talks with the political party leaders. His appointment was welcomed by the Ulster Unionists, whose relations with Ms Mowlam were strained. But the departure of the latter was regretted by republican politicians. Mr Blair, who has played a prominent part in the negotiations over the Good Friday Agreement, intends to take a back-seat role now that a new secretary of state is in place.

Last night, Mr Mandelson promised to work "night and day" to achieve a lasting peace in Ulster. "I have no doubt it is going to be very hard," he said. "It is a tremendous opportunity, a tremendous challenge."

Some Labour MPs will be worried at the speed of Mr Mandelson's return. The Tories immediately sought to revive the controversy over the huge loan he received from Geoffrey Robinson, the former paymaster-general, to buy a house in Notting Hill, west London. The Tories demanded an Inland Revenue investigation into whether Mr Mandelson paid tax on his loan.

Mr Brown and John Prescott, the Deputy Prime Minister, did not object to him taking on the difficult Northern Ireland portfolio. "If he is going to come back, there is no better place," one ministerial rival of Mr Mandelson said last night.

Ms Mowlam admitted she was "sad" to leave her Ulster post but welcomed Mr Mandelson's recall. "I am not in charge of purgatory but Peter acknowledged what had happened and has paid for it." she said.

Leaving the Cabinet along with Mr Cunningham are Lord Robertson, the former secretary of state for defence, who has been appointed secretary-general of Nato, and Frank Dobson, who leaves the health portfolio with the aim of becoming mayor of London.

Last night, Mr Blair promoted two women modernisers to key posts outside the cabinet. Tessa Jowell moved to the Department of Education to replace Mr Smith in charge of the New Deal; and Yvette Cooper, the wife of Ed Balls, the Chancellor's economics adviser, was promoted from the back benches to replace Ms Jowell as Public Health minister. Keith Vaz was appointed minister for Europe and was replaced at the Lord Chancellor's department by Jane Kennedy.

Michael Ancram, the Conservative Party chairman, said: "The reappointment of Peter Mandelson to the Cabinet just 10 months after he left shows how arrogant this Prime Minister has become. It is wrong to bring back a disgraced minister who was forced to resign only 10 months ago."

Mr Dobson's decision to "bail out" was seen by some party dissidents as evidence of growing unrest at the direction of government policy. One Labour MP said the reshuffle would do nothing to quell the disquiet simmering on the back benches. He said: "Opposition is mounting in a number of areas - anger is increasing about the threat to reorganise entitlement to industrial disabilities benefits, and the intention to sell off the air-traffic control service."